Informed Trading in Business Groups, Ownership Concentration, and Market Liquidity
Business groups, which are collections of publicly traded companies with significant amount of common ownership, dominate private sector activity in developing countries. This paper studies how information flows within these groups by analyzing the...
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| Language: | English en_US |
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/05/26419593/informed-trading-business-groups-ownership-concentration-market-liquidity http://hdl.handle.net/10986/24525 |
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okr-10986-245252021-04-23T14:04:22Z Informed Trading in Business Groups, Ownership Concentration, and Market Liquidity Leano, Miguel Pedraza, Alvaro MICROSTRUCTURE OUTSIDE INVESTORS ACCOUNTING FUND MANAGER INTERNATIONAL CAPITAL STOCK FOREIGN INVESTORS FUTURES FUND MANAGERS INTEREST SECURITY MARKETS INSTITUTIONAL INVESTORS DUMMY VARIABLES INFORMATION FLOWS PENSION SYSTEMS EXCHANGE PORTFOLIO CHOICE STOCK MARKET LIQUIDITY EQUITY MARKET DEVELOPING COUNTRIES POLITICAL ECONOMY EQUITY SECURITIES PORTFOLIO ASSET MANAGEMENT STOCK MARKET CAPITALIZATION PENSION SYSTEM DUMMY VARIABLE MONEY MANAGERS INTERNATIONAL BANK PENSION INFORMATION ASYMMETRIES DEVELOPING COUNTRY REGULATORY AUTHORITIES INSURANCE COMPANY INFORMATION DISCLOSURE MARKET PARTICIPANTS MARKET LIQUIDITY INSTITUTIONAL INVESTOR MARKET DEEPENING SAVINGS STOCK TRADING ILLIQUIDITY INVESTMENT BEHAVIOR MARKET DEVELOPMENT PENSION FUND INVESTMENT TELECOMMUNICATIONS OWNERSHIP STRUCTURES COMMERCIAL BANK FINANCIAL STUDIES DOMESTIC INSTITUTIONAL INVESTORS PORTFOLIOS TRADING GLOBALIZATION DEBT MARKETS RETURN PRIVATE SECTOR DEVELOPMENT SECONDARY MARKET LIQUIDITY TYPE OF INVESTORS ASSET CLASSES PENSION FUNDS FINANCE TRANSACTIONS AUCTIONS EMERGING MARKETS INTERNATIONAL STANDARDS EQUITY TRANSACTION INVESTORS REGULATORY FRAMEWORKS GOOD OWNERSHIP STRUCTURE OWNERSHIP DATA INTERNATIONAL PORTFOLIOS MARKET CAPITALIZATION MARKET FAILURES TURNOVER FUTURE TRADING ACTIVITY SECONDARY MARKETS RETURNS MARKET INDEX INVESTMENT BANK CAPITALIZATION GOVERNANCE PRACTICES SHARES BALANCE SHEET TRANSACTION COSTS MARKET MARKET VALUE INSIDER TRADING INDIVIDUAL SECURITIES SECURITIES INTERNATIONAL PORTFOLIO GOVERNANCE SHAREHOLDERS HOLDINGS INSURANCE GOVERNMENT DEBT TRADE BUYBACKS INVESTOR SECURITY EQUITY MARKETS STOCKS STOCK EXCHANGE INVESTMENT DOMESTIC EQUITY COMMERCIAL BANKS INVESTMENT PORTFOLIO SHARE BALANCE SHEETS PORTFOLIO HOLDINGS TRANSACTIONS COSTS TRADES MARKET MICROSTRUCTURE BID INVESTMENTS CHECK SHAREHOLDER PENSION FUND STOCK RETURNS MATURITIES INSTRUMENT INFORMED INVESTORS SECONDARY MARKET LIABILITIES DOMESTIC INVESTORS ASSET MANAGERS CORPORATE GOVERNANCE INVESTMENT DECISION Business groups, which are collections of publicly traded companies with significant amount of common ownership, dominate private sector activity in developing countries. This paper studies how information flows within these groups by analyzing the trading behavior of pension fund managers in firms that belong to the same group. The paper shows that while pension fund managers are momentum traders on non-affiliated companies, they trade in anticipation of future abnormal returns in affiliated firms. Ownership concentration and business group ties exacerbate information asymmetries, discouraging investment and depressing stock market participation. Using the merger and acquisition activity among pension fund managers as a natural experiment, the paper provides evidence that increases in stock ownership concentration, via the threat of informed trading, adversely affect liquidity. The results indicate that cross-ownership structures and extensive investor-industry relations might curb the expected benefits from the presence of institutional investors, limiting market development. 2016-06-14T19:47:36Z 2016-06-14T19:47:36Z 2016-05 Working Paper http://documents.worldbank.org/curated/en/2016/05/26419593/informed-trading-business-groups-ownership-concentration-market-liquidity http://hdl.handle.net/10986/24525 English en_US Policy Research Working Paper;No. 7688 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
MICROSTRUCTURE OUTSIDE INVESTORS ACCOUNTING FUND MANAGER INTERNATIONAL CAPITAL STOCK FOREIGN INVESTORS FUTURES FUND MANAGERS INTEREST SECURITY MARKETS INSTITUTIONAL INVESTORS DUMMY VARIABLES INFORMATION FLOWS PENSION SYSTEMS EXCHANGE PORTFOLIO CHOICE STOCK MARKET LIQUIDITY EQUITY MARKET DEVELOPING COUNTRIES POLITICAL ECONOMY EQUITY SECURITIES PORTFOLIO ASSET MANAGEMENT STOCK MARKET CAPITALIZATION PENSION SYSTEM DUMMY VARIABLE MONEY MANAGERS INTERNATIONAL BANK PENSION INFORMATION ASYMMETRIES DEVELOPING COUNTRY REGULATORY AUTHORITIES INSURANCE COMPANY INFORMATION DISCLOSURE MARKET PARTICIPANTS MARKET LIQUIDITY INSTITUTIONAL INVESTOR MARKET DEEPENING SAVINGS STOCK TRADING ILLIQUIDITY INVESTMENT BEHAVIOR MARKET DEVELOPMENT PENSION FUND INVESTMENT TELECOMMUNICATIONS OWNERSHIP STRUCTURES COMMERCIAL BANK FINANCIAL STUDIES DOMESTIC INSTITUTIONAL INVESTORS PORTFOLIOS TRADING GLOBALIZATION DEBT MARKETS RETURN PRIVATE SECTOR DEVELOPMENT SECONDARY MARKET LIQUIDITY TYPE OF INVESTORS ASSET CLASSES PENSION FUNDS FINANCE TRANSACTIONS AUCTIONS EMERGING MARKETS INTERNATIONAL STANDARDS EQUITY TRANSACTION INVESTORS REGULATORY FRAMEWORKS GOOD OWNERSHIP STRUCTURE OWNERSHIP DATA INTERNATIONAL PORTFOLIOS MARKET CAPITALIZATION MARKET FAILURES TURNOVER FUTURE TRADING ACTIVITY SECONDARY MARKETS RETURNS MARKET INDEX INVESTMENT BANK CAPITALIZATION GOVERNANCE PRACTICES SHARES BALANCE SHEET TRANSACTION COSTS MARKET MARKET VALUE INSIDER TRADING INDIVIDUAL SECURITIES SECURITIES INTERNATIONAL PORTFOLIO GOVERNANCE SHAREHOLDERS HOLDINGS INSURANCE GOVERNMENT DEBT TRADE BUYBACKS INVESTOR SECURITY EQUITY MARKETS STOCKS STOCK EXCHANGE INVESTMENT DOMESTIC EQUITY COMMERCIAL BANKS INVESTMENT PORTFOLIO SHARE BALANCE SHEETS PORTFOLIO HOLDINGS TRANSACTIONS COSTS TRADES MARKET MICROSTRUCTURE BID INVESTMENTS CHECK SHAREHOLDER PENSION FUND STOCK RETURNS MATURITIES INSTRUMENT INFORMED INVESTORS SECONDARY MARKET LIABILITIES DOMESTIC INVESTORS ASSET MANAGERS CORPORATE GOVERNANCE INVESTMENT DECISION |
| spellingShingle |
MICROSTRUCTURE OUTSIDE INVESTORS ACCOUNTING FUND MANAGER INTERNATIONAL CAPITAL STOCK FOREIGN INVESTORS FUTURES FUND MANAGERS INTEREST SECURITY MARKETS INSTITUTIONAL INVESTORS DUMMY VARIABLES INFORMATION FLOWS PENSION SYSTEMS EXCHANGE PORTFOLIO CHOICE STOCK MARKET LIQUIDITY EQUITY MARKET DEVELOPING COUNTRIES POLITICAL ECONOMY EQUITY SECURITIES PORTFOLIO ASSET MANAGEMENT STOCK MARKET CAPITALIZATION PENSION SYSTEM DUMMY VARIABLE MONEY MANAGERS INTERNATIONAL BANK PENSION INFORMATION ASYMMETRIES DEVELOPING COUNTRY REGULATORY AUTHORITIES INSURANCE COMPANY INFORMATION DISCLOSURE MARKET PARTICIPANTS MARKET LIQUIDITY INSTITUTIONAL INVESTOR MARKET DEEPENING SAVINGS STOCK TRADING ILLIQUIDITY INVESTMENT BEHAVIOR MARKET DEVELOPMENT PENSION FUND INVESTMENT TELECOMMUNICATIONS OWNERSHIP STRUCTURES COMMERCIAL BANK FINANCIAL STUDIES DOMESTIC INSTITUTIONAL INVESTORS PORTFOLIOS TRADING GLOBALIZATION DEBT MARKETS RETURN PRIVATE SECTOR DEVELOPMENT SECONDARY MARKET LIQUIDITY TYPE OF INVESTORS ASSET CLASSES PENSION FUNDS FINANCE TRANSACTIONS AUCTIONS EMERGING MARKETS INTERNATIONAL STANDARDS EQUITY TRANSACTION INVESTORS REGULATORY FRAMEWORKS GOOD OWNERSHIP STRUCTURE OWNERSHIP DATA INTERNATIONAL PORTFOLIOS MARKET CAPITALIZATION MARKET FAILURES TURNOVER FUTURE TRADING ACTIVITY SECONDARY MARKETS RETURNS MARKET INDEX INVESTMENT BANK CAPITALIZATION GOVERNANCE PRACTICES SHARES BALANCE SHEET TRANSACTION COSTS MARKET MARKET VALUE INSIDER TRADING INDIVIDUAL SECURITIES SECURITIES INTERNATIONAL PORTFOLIO GOVERNANCE SHAREHOLDERS HOLDINGS INSURANCE GOVERNMENT DEBT TRADE BUYBACKS INVESTOR SECURITY EQUITY MARKETS STOCKS STOCK EXCHANGE INVESTMENT DOMESTIC EQUITY COMMERCIAL BANKS INVESTMENT PORTFOLIO SHARE BALANCE SHEETS PORTFOLIO HOLDINGS TRANSACTIONS COSTS TRADES MARKET MICROSTRUCTURE BID INVESTMENTS CHECK SHAREHOLDER PENSION FUND STOCK RETURNS MATURITIES INSTRUMENT INFORMED INVESTORS SECONDARY MARKET LIABILITIES DOMESTIC INVESTORS ASSET MANAGERS CORPORATE GOVERNANCE INVESTMENT DECISION Leano, Miguel Pedraza, Alvaro Informed Trading in Business Groups, Ownership Concentration, and Market Liquidity |
| relation |
Policy Research Working Paper;No. 7688 |
| description |
Business groups, which are collections
of publicly traded companies with significant amount of
common ownership, dominate private sector activity in
developing countries. This paper studies how information
flows within these groups by analyzing the trading behavior
of pension fund managers in firms that belong to the same
group. The paper shows that while pension fund managers are
momentum traders on non-affiliated companies, they trade in
anticipation of future abnormal returns in affiliated firms.
Ownership concentration and business group ties exacerbate
information asymmetries, discouraging investment and
depressing stock market participation. Using the merger and
acquisition activity among pension fund managers as a
natural experiment, the paper provides evidence that
increases in stock ownership concentration, via the threat
of informed trading, adversely affect liquidity. The results
indicate that cross-ownership structures and extensive
investor-industry relations might curb the expected benefits
from the presence of institutional investors, limiting
market development. |
| format |
Working Paper |
| author |
Leano, Miguel Pedraza, Alvaro |
| author_facet |
Leano, Miguel Pedraza, Alvaro |
| author_sort |
Leano, Miguel |
| title |
Informed Trading in Business Groups, Ownership Concentration, and Market Liquidity |
| title_short |
Informed Trading in Business Groups, Ownership Concentration, and Market Liquidity |
| title_full |
Informed Trading in Business Groups, Ownership Concentration, and Market Liquidity |
| title_fullStr |
Informed Trading in Business Groups, Ownership Concentration, and Market Liquidity |
| title_full_unstemmed |
Informed Trading in Business Groups, Ownership Concentration, and Market Liquidity |
| title_sort |
informed trading in business groups, ownership concentration, and market liquidity |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/05/26419593/informed-trading-business-groups-ownership-concentration-market-liquidity http://hdl.handle.net/10986/24525 |
| _version_ |
1764456948134051840 |